Basic query on accounting

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pavankumar (Querist)
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19 June 2013 Q1) Can we say that Securities Premium a/c & Capital Redemption reserve a/c are "Specific Rserve" and hence cannot be utilised for the purpose of distribution of dividend to shareholders.
Please guide me.

Ganeshbabu K

Ganeshbabu K (Expert)
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23 June 2013
1)The Companies Act allows dividends to be paid out of three sources namely (a) Profits of the company for the year for which dividends are to be paid. (b) Undistributed profits of the previous financial years. (c) Moneys provided by the Central Government or a State Government for the payment of dividends in pursuance of a guarantee by the Government concerned.

2)Dividends cannot be declared out of the Securities Premium Account or the Capital Redemption Reserve Account or Revaluation Reserve or Amalgamation Reserve or out of the Profit on re-issue of forfeited shares or out of profit earned prior to the incorporation of the Company

Thanks & regards
Ganesh babu k

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Ganeshbabu K

Ganeshbabu K (Expert)
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23 June 2013 Share premium is not 'profit' or 'gain':

1)Share premium is capital receipt and contributed as such by the shareholders.

2)The amount of premium is neither 'profit' nor 'gain' of the company, it is capital receipt to be accounted for as share premium.

3)This amount cannot be credited in the profit and loss account of the company.

4)This is not received as consideration for any goods sold or services rendered by the company.

5)It is worth to mention that share premium is not treated as any item of 'income' as defined in S. 2(24) or as a business profit or gain u/s 28.

6)Therefore, share premium account cannot be included in 'accumulated profits' of the company.

Thanks & regards
Ganesh babu k

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